Saturday, January 25, 2014

Adam Smith's Self Interest is Not Served by Selfishness

A correspondent asks
about the natural role for co-operation in an economy, and below is my (short)
response:

“Adam Smith addresses the substance of your paper. You are correct
that Smith did not advocate nor excuse selfish behaviour. He writes to
that affect throughout both ‘Moral Sentiments’ and ‘Wealth Of Nations’.
Moreover, and most relevant, he was quite clear on the substance of your basic
theme: humans everywhere depend on the voluntary co-operation of thousands of
others (WN I.ii.). That is the essential feature of any economy in any
society.

Anthropologists show how human small bands
(fewer than 30 adults) depend on each other for their sustenance, sharing in
times of need and in many cases institutionalising this natural ‘insurance’
behaviour (observed not conjectured) in band-wide pooling of the products of
their labours each day, which brings reciprocal sharing behaviours that
empirically substantiates Smith’s point (in his case conjectured, not
necessarily observed). For examples see Christopher Boehm. 2012. ‘Moral Origins:
the evolution of virtue, altruism, and shame’. Basic Books. (Based on scores of
fieldwork cases and specialist observations over many years).

However, Smith’s conjectured point led to
his firmly and clearly asserted advice in his famous passage in Book 1, chapter
2, of the “butcher, brewer, and baker” example, widely misread (if read at
all), with its specific emphasis on the male buyer (more likely his female relative!)
searching for the main ingredients of his dinner requiring him to “address the
interests (‘self-love’)” of the sellers, and specifically not address or refer
to his own self-interests!

The needs of the buyer are not an explicit
part of the persuasive side of such transactions – that would mean the buyer
relying on the seller’s benevolence, already excluded because benevolence was
an “insufficient” resource (basically because nobody has enough of the means of everything to
be totally benevolent towards everybody else for everything).

In short, Smith advised buyers to address
their self-interests solely by addressing the self-interests of others, that is
self-interests are only realised on a daily basis by each individual party to
the transactions mediating their self-interests through persuasion,
conversation, and bargaining, not by egotistically demanding others surrender
to ours. This is fundamental to the Smithian doctrine of self-interest. It was also
common in successful negotiations between self-interested and often
antagonistic parties (as my 25 years fieldwork confirmed as a consultant
negotiator in my former day job at Edinburgh Business School).

George Stigler’s 1976
opening admonition that economics is founded on the “granite of self-interest”
needs to be modified by the inclusion of the words “the granite of mediated self-interest”!
Smith might then have saved the Chicago ‘boys’ from embarrassment in Chile if they
had read Smith properly and not been enthused by Stigler’s enthusiasms for a
half-understood idea that wasn’t Smith’s anyway.